Historically, banks have earned revenue off the spread between lending money and taking in deposits. However, the low-rate environment that began with the financial crisis, and dropped dramatically back to zero in early 2020, can hinder a bank’s ability to generate revenue — making diverse fee income sources increasingly important to sustaining profitability.
Successful banks find a few key areas where they can outperform, and that’s where they focus their energy and resources.
“A number of banks looking at where they can generate fee income and non-balance sheet income, they’re looking at areas where they have some expertise,” says Rick Childs, a partner at Crowe. “They then continue to build scale through additional regions that they enter into, additional teams that they pull together or through acquisitions.”
To identify the high-performing bank with the best revenue strategy, Bank Director examined whether each institution had a diversity of fee income sources to weather the prolonged low-rate environment, both by calculating average fee income as a percentage of net revenue, and by studying the bank’s revenue streams and niche areas of focus. We also calculated growth in net revenue, fee income and pre-tax, pre-provision (PTPP) income from December 2014 to December 2019.
Meta Financial Group came out on top. A veritable growth machine, the company demonstrated the highest levels of growth in fee income (328%), PTPP income (689%) and overall revenue (455%).
Meta’s definitely not a traditional bank — in fact, it sold off its community bank division in March 2020. It focuses on prepaid cards, tax services and commercial lending, and also serves as a banking-as-a-service (BaaS) provider for fintech platforms such as MoneyLion.
“They’re a unique animal,” says Piper Sandler managing director Frank Schiraldi. “They’re in a better position than most banks in terms of revenue growth, given the changing environment and a greater emphasis on a cashless economy.” Over the summer, Meta issued 3.6 million prepaid cards on behalf of the Department of the Treasury to get $6.4 billion in CARES Act stimulus funds to taxpayers; that grew deposits and “will be a potential revenue stream down the road,” he says.
At second, WSFS Financial Corp. also boasts a high level of revenue growth (208%), as well as growth in PTPP (162%) and fee (107%) income. The bank’s business lines include mortgage, wealth management, private banking, trust and investment services, and a tax lien business. Similar to Meta, it also offers a BaaS platform to fintech companies such as cred.ai.
Fee generation supports the traditional banking model, explains WSFS Chairman and CEO Rodger Levenson. Formerly a thrift, bank leadership has steadily converted to a commercial bank model. “We have [a] unique position as the largest locally-headquartered bank in the region, and we have the full set of products and services that [our] customers want and need,” he says.
WSFS’ Cash Connect subsidiary provides a unique revenue source, funding more than 17,000 nonbank ATMs nationwide. In addition to growing the top line, Cash Connect also serves as an innovation center of sorts for WSFS. “The [Cash Connect] business is basically about keeping track of $20 bills in thousands and thousands of ATMs across the United States,“ says Levenson. “It’s really a logistics record-keeping and tracking business that requires very sophisticated technology.” This technology is also used by other banks to reconcile their own ATMs; WSFS receives fees for that use. “It’s a very entrepreneurial, unique, niche business that really has been very innovative,” he says.
Eagle Bancorp Montana, which ranks third, also features notable growth, particularly in fee (180%) and PTPP (669%) income; total revenue grew 147%. Eagle has been expanding its mortgage banking team over the last couple of years; the bank generates a significant portion of its fee income by selling mortgages on the secondary market, according to Eagle’s 2019 annual filing.
Horizon Bancorp CEO Craig Dwight believes revenue growth comes from opportunity and encourages his staff to take a proactive approach. “We put a lot of emphasis on [our] local market presidents on product knowledge, product roll out where we think we can get the best yields,” he says. “It’s locally driven; banking is still a people business, especially in the small business area.” Ranking fourth, Horizon Bancorp exhibits a high level of growth in total revenue (155%) and PTPP income (211%). The bank generates fee income through investment and wealth management, trust, insurance, and mortgage loans.
Finally, Independent Bank Corp. ranks fifth, with revenue growth at 101%. It generates fee income through wealth and investment management, including financial planning and trust, as well as insurance and mortgage banking.
How They Ranked: Best Revenue Strategy
DEC. 2014 – DEC. 2019
|FEE INCOME/NET REVENUE (AVG.)
DEC. 2014 – DEC. 2019
|CATEGORY WINNER: Meta Financial Group||1.17||455.38%||117.74%|
|2||WSFS Financial Corp.||3.72||207.91%||51.94%|
|3||Eagle Bancorp Montana||5.50||146.74%||52.83%|
|5||Independent Bank Corp.||7.83||100.74%||31.93%|
|6||Southern Missouri Bancorp||8.11||58.96%||24.05%|
|7||Community Bank System||8.67||48.10%||56.55%|
|11||Greene County Bancorp||10.72||101.77%||17.15%|
|12||First Financial Bankshares||10.78||48.74%||36.09%|
|13||Lakeland Financial Corp.||11.00||51.44%||27.69%|
|14||The First Bancorp||12.83||33.11%||24.34%|
|15||Stock Yards Bancorp||13.11||49.44%||44.47%|
|17||City Holding Co.||14.89||37.06%||46.94%|
|19||Hingham Institution for Savings||17.94||44.63%||4.76%|
|20||Auburn National Bancorp.||18.44||20.15%||17.61%|
SOURCE: S&P Global Market Intelligence, bank websites, filings and other public information